Legislators Consider Intercept Bill to Aid Schools

A bill sponsored by State Representative Danny Short (R-Seaford) is gaining traction throughout the state as a way to help struggling school districts. House Bill 85, known as the Tax Intercept Bill, would allow counties to collect back taxes from state taxpayers who are owed a refund on their state income tax.

“Tax intercept programs are already used to collect child support and some debts owed to the state,” Representative Short said. “The University of Delaware, DelState and DelTech can also use this sensible device. Yet, school districts are specially banned under current law from taking advantage of this pragmatic collection method.” Similar bills have been introduced in the past but have repeatedly been blocked by a handful of influential legislators, according to the press release issued by the Delaware House of Representatives.

Legislators who represent the Milford area say that they are highly in favor of the passage of such a bill. In fact, Representatives Harvey Kenton and Dave Wilson are both co-sponsors of the bill. Although Representative Jack Peterman is not a co-sponsor, he strongly supports the legislation. The bill would add the line “…any political subdivision or school district of this State, with respect to property taxes owed to it…” to the existing tax intercept law. This would also allow counties to intercept tax refunds in an effort to collect back taxes.

“I am certainly in favor of intercepts on tax refunds for school districts throughout Delaware who are owed school taxes from taxpayers whose taxes were in arrears,” said Senator Gary Simpson who is also a co-sponsor of the bill.

Milford School District is currently facing an operations budget deficit that is requiring them to go to referendum on October 6, 2015. Two previous referendums failed to pass. If the community does not support a tax increase in this referendum, the district will exhaust their reserves by the 2017 school year. This could mean state intervention that may cause the cancellation of many student programs, including some athletics and, in the worst case, could result in the district being merged with a neighboring district.

At a recent board meeting, Sara Croce, Chief Financial Officer in Milford, reported that the district was owed $453,404 in delinquent taxes. The delinquencies had accumulated over the past five years and Ms. Croce said that the county was responsible for collecting those taxes. The Board of Education expressed concern at the meeting that such a high amount of back taxes were owed considering their current financial situation.

“While I think the tax intercept program is a great program to ensure districts get the funds that they are owed, it would not be a magic fix to our current budget deficit,” Ms. Croce said. “From my understanding of the program, I think it would ensure that districts are meeting their revenue budget through local funds. It is challenging for districts when they set a tax rate and expect to collect a certain amount and get shorted due to delinquent taxes, especially in cases where districts are operating in budget deficits already.”

Ms. Croce said that she understood that the county would be responsible for intercepting tax refunds. She did not know what method the county would use to intercept taxes or whether it would be similar to the methods used by higher education institutions. Ms. Croce believes that the program is just as important to local school districts as it is to higher education institutions, especially since higher education institutions are able to collect tuition for students while local districts rely solely on their local allocations from local tax revenue as well as state and federal funds.

The bill was released from committee on June 10, 2015, but has still not been passed by the House of Representatives.